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Learning on the Quick and Cheap: Gains from Trade through Imported Expertise

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  • James R. Markusen
  • Thomas F. Rutherford

Abstract

Gains from productivity and knowledge transmission arising from the presence of foreign firms has received a good deal of empirical attention, but micro-foundations for this mechanism are weak . Here we focus on production by foreign experts who may train domestic unskilled workers who work with them. Gains from training can in turn be decomposed into two types: (a) obtaining knowledge and skills at a lower cost than if they are self-taught at home, (b) producing domestic skilled workers earlier in time than if they the domestic economy had to rediscover the relevant knowledge through “reinventing the wheel”. We develop a three-period model in which the economy initially has no skilled workers. Workers can withdraw from the labor force for two periods of self study and then produce as skilled workers in the third period. Alternatively, foreign experts can be hired in period 1 and domestic unskilled labor working with the experts become skilled in the second period. We analyze how production, training, and welfare depend on two important parameters: the cost of foreign experts and the learning (or “absorptive”) capacity of the domestic economy.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1251.

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Length: 36 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:kie:kieliw:1251

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Keywords: learning; transmission mechanism; multinationals; imported experetise;

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References

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  1. Ethier, W.J. & Markusen, J.R., 1993. "Multinational Firms, Technology Diffusion and Trade," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0303, Institute of Social and Economic Research, Osaka University.
  2. Beata K. Smarzynska, 2003. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages," William Davidson Institute Working Papers Series 548, William Davidson Institute at the University of Michigan.
  3. Wolfgang Keller, 2002. "Geographic Localization of International Technology Diffusion," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 120-142, March.
  4. Blomström, Magnus & Sjöholm, Fredrik, 1998. "Technology, Transfer and Spillovers: Does Local Participation With Multinationals Matter?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2048, C.E.P.R. Discussion Papers.
  5. Markusen, James R., 2001. "Contracts, intellectual property rights, and multinational investment in developing countries," Journal of International Economics, Elsevier, Elsevier, vol. 53(1), pages 189-204, February.
  6. Keller, Wolfgang, 1997. "How trade patterns and technology flows affect productivity growth," Policy Research Working Paper Series 1831, The World Bank.
  7. James Markusen & Thomas Rutherford & David Tarr, 2005. "Trade and direct investment in producer services and the domestic market for expertise," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 38(3), pages 758-777, August.
  8. Hall, Bronwyn H. & Khan, Beethika, 2003. "Adoption of New Technology," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt3wg4p528, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  9. Wolfgang Keller, 1997. "Are International R&D Spillovers Trade-Related? Analyzing Spillovers Among Randomly Matched Trade Partners," NBER Working Papers 6065, National Bureau of Economic Research, Inc.
  10. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 104(4), pages 495-513, December.
  11. Gong, Guan & Keller, Wolfgang, 2003. "Convergence and polarization in global income levels: a review of recent results on the role of international technology diffusion," Research Policy, Elsevier, Elsevier, vol. 32(6), pages 1055-1079, June.
  12. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, Elsevier, vol. 43(2), pages 335-356, February.
  13. Markusen, James & Rutherford, Thomas F. & Tarr, David, 2000. "Foreign direct investment in services and the domestic market for expertise," Policy Research Working Paper Series 2413, The World Bank.
  14. Andrea Fosfuri & Massimo Motta & Thomas Ronde, 1998. "Foreign direct investments and spillovers through workers' mobility," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 258, Department of Economics and Business, Universitat Pompeu Fabra.
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Cited by:
  1. Kuan Xu & Zhengxi Lin, 2007. "Participation in Employer-sponsored Training in Canada: Role of Firm Characteristics and Worker Attributes," Department of Economics at Dalhousie University working papers archive, Dalhousie, Department of Economics paperb1_7_ic_workingpaper, Dalhousie, Department of Economics.
  2. Dieter M. Urban, 2010. "FDI, Technology Spillovers, and Wages," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 18(3), pages 443-453, 08.
  3. Carmen F. Castejón & Julia Wörz, 2006. "Good or Bad? The Influence of FDI on Output Growth: An industry-level analysis," wiiw Working Papers, The Vienna Institute for International Economic Studies, wiiw 38, The Vienna Institute for International Economic Studies, wiiw.
  4. Caudillo Sanchez, Francisco, 2006. "Is information and communication technology (ICT) the right strategy for growth in Mexico?," Freiberg Working Papers 2006,17, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.

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